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AUD upturn falters as fears easing restrictions will bring second wave of infections

AUD - Australian Dollar

The Australian Dollar retreated sharply overnight as shifting risk sentiment forced investors toward the USD and haven assets. Despite improved demand for US equities the AUD failed to extend the upturn enjoyed through the Australasian session, giving up intraday highs at 0.6560 and swiftly retreating back below 0.65 US cents. Concerns a spike in new COVID19 infections in Germany and South Korea may force leaders to roll back easing lock down restrictions and impose increased social distancing protocol prompted markets to adopt a more cautious tone. The AUD fell to intraday lows at 0.6455 before edging higher into this morning open. The AUD currently buys 0.6487 US cents.

Risk continues to drive direction and the overnight AUD correction illustrates just how vulnerable the AUD is to shifts in the underlying market tone. Volatility remains elevated and we expect the Aussie dollar will suffer further uncertainties in the weeks ahead. With the pressures of a global recession mounting and risk sentiment fluctuating daily gains beyond recent highs at 0.6570 will be hard won. With little of note on the days domestic macroeconomic docket attentions turn to US inflation data ahead of tomorrow’s all-important quarterly wage growth print.

With resistance on moves above 0.655 with support intact on moves approaching 0.6380

Key Movers

The US dollar advanced through trade on Monday as concerns a second wave of infections may force leaders to roll back loosened restrictions prompted markets to slow demand for risk assets. Germany and South Korea, two countries that eased lockdown protocol early, have both reported alarming spikes in the number of new cases with the formation of new clusters within their respective communities a growing cause for concern. With the UK, NZ, France, Australia, Spain, Turkey and Israel all announcing amendments to there respective social distancing conventions the spike in new cases in Germany and South Korea have forced to investors to adopt a cautious tone, ensnaring the recent risk on move with top side gains for risk assets capped through the short term.

Risk remains the primary driving force governing broader currency direction as the dollar index pushed back through 100. Despite the risk off move the Japanese Yen failed to keep pace with the USD as demand for equities and US treasury bonds helped drive the dollar higher. Advancing almost 1% to touch 107.65 the USD also enjoyed gains against the Euro and GBP.

Attentions now turn to the Fed President Jerome Powell Wednesday for commentary and forward guidance. Speculation forced US futures into negative territory last week and it is expected Powell will double down on recent Fed messaging, affirming the FOMC will not introduce negative interest rates in the near term. A shift from message could hurt US demand as the yield play on key crosses, namely EUR/USD narrows.

Expected Ranges

AUD/USD: 0.6380 - 0.6570 ▼

AUD/EUR: 0.5920 - 0.6050 ▼

GBP/AUD: 1.8820 - 1.9220 ▲

AUD/NZD: 1.0620 - 1.0720 ▲

AUD/CAD: 0.9010 - 0.9130 ▼